LOCAL SPIN: Earnings reports provide snapshot of markets, economy

Wednesday

Aug 2, 2017 at 2:01 AM

Aaron London @AaronLondondbnj

Earnings season is a time for investors to get a measure of their portfolio's performance and for analysts to prognosticate about the future. But for all the hype of quarterly earnings, it is only a three-month snapshot of the market. For a look at what quarterly earnings reports mean beyond individual company performance and how important earnings are to the overall economy, David Fowler, president of Alliance Financial Partners in Palm Coast, offers the local spin.

How important are quarterly earnings as a barometer of broader economic health?

I think that earnings reports on a broad spectrum are a relatively reliable way to measure the strength of our economy. Trends moving in an upward direction or staying positive for multiple periods can reflect a strengthening or strong economy. They key is to look at multiple period trends and not get too focused on a single company's single period report.

Do you feel people can get too focused on earnings reports when reviewing their portfolios?

Like many things, when it comes to investing I think the average investor can get too focused on short-term information when it comes to their portfolios and investment philosophy. For the most part, it doesn’t really matter if a company has had a really good quarter or a negative quarter, if it is a solid investment with strong fundamentals. If the investment portfolio has a goal of long-term appreciation, trading against quarterly earnings reports is trying to time the market after the fact. Even the best companies can’t win every quarter.

With the stock market at record highs, investor confidence is up. Do you see this trend continuing?

We are in one of the longest bull run markets in history. It is only logical to think that this trend cannot continue long term and the market will have to return to its normalized long-term average. In order to do so, we will most likely experience a period of negative returns. The market achieves great growth over long periods of time with volatility, the current market confidence does not exclude us from this inevitable fact. The key is to be properly allocated and not overweight any single asset class trying to chase higher growth that may be outside of your risk tolerance if there is a negative return year.

What factors do you see affecting the markets in the next six to nine months?

In my opinion, I think investors are watching the success, or lack of, in the political environment. There has been a push to weaken or remove business constraining regulations and allow our economy to continue to grow. Small business in our country has a tremendous amount of red tape, taxes and regulation to navigate in order to be profitable. If we continue to ease this pressure, business should respond positively. If this is met with opposition, it could potentially slow the growth we are experiencing. In addition, we should keep an eye on the yield curve as interest rates continue to rise.